We’ve written before about politics and their influence on forex trading. The actions of influential politicians in the U.S., Europe, and other areas with large and significant economies can and do impact exchange rates on a day-to-day basis. And naturally, larger actions and conflicts can have a greater effect.
For example, back in February EU Reporter covered Theresa May’s handling of parliament and the Brexit issue, and the various ways in which her actions impacted the British pound (primarily in a negative manner). Indeed, the recent turmoil in British politics has actually provided numerous examples of how specific actions can affect the currency exchange.
Right now though, European economies face a different sort of consideration, in that they are being impacted by an economic dispute between two foreign powers. As many will by now be aware, trade relations between the United States and China have strained of late – in what’s increasingly being referred to as a “trade war” – with indirect ramifications for the Euro.
A detailed breakdown of the U.S.-China trade war could (and no doubt will) fill volumes. The basics, though, are that President Trump has at various times since early 2018 threatened and in some cases imposed tariffs on Chinese goods. China has responded in kind, and ultimately both countries’ economies have experienced negative effects and fluctuating currency values. Meanwhile, the two sides have yet to come to an agreement on new trade arrangements, and the U.S. is set to impose an additional 15% tariff on some $160 billion in Chinese goods in the middle of December.
The main effects of all of this are naturally being felt in the United States and China – but the ongoing dispute between the two nations is beginning to look as if it might actually be having a positive impact on the Euro. Broadly speaking, the Euro has had a fairly weak year against the U.S. dollar. The forex charts at FXCM show the EUR/USD having peaked for the year</a> early in January before reaching some of its lowest points since mid-2017 this past autumn.
Despite this precipitous performance throughout most of the year though, and the difficulties it has caused in the forex market, there have been some recent upticks in value. That’s not to say the Euro has seen a steady rise, but it has recovered from its October lows, as well as from another dip toward the middle of November. And some are suggesting this is thanks to the trade war.
Indeed, CNBC reported in early December that the dollar had been “whacked” by trade tensions and weak U.S. data.
Regarding that weak U.S. data, CNBC noted that the U.S. Institute for Supply Management recently released disappointing numbers for national factory activity, as well as that low investment in private projects had led to low construction spending. This is just to say that there are some internal U.S. economic indicators that are also contributing to the dollar’s struggles. However, uncertainty over the trade war and the aforementioned mid-December deadline for new agreements with China are certainly responsible to some extent.
Ultimately, a prolonged dispute between the United States and China is likely to send negative shockwaves across world economies
– and thus may not be something to root for. However, for the time being, the dispute appears to mean good news for the Euro at the tail end of a difficult year, and potentially into 2020.
Category: A Frontpage, Business, China, Economy, US